How Could the Fed Protect Us from Economic Waves?
Making Waves
Mainstream economists tell us that the Federal Reserve protects us from economic waves, indeed from the business cycle itself. In their view, people naturally tend to go overboard and cause wild swings in both directions. Thus, we need an economic central planner to alternatively stimulate us and then take away the punch bowl.
Newspapers report on the adoption of the Federal Reserve Act. It was erroneously held that it was going to be “a constructive Act to aid business”. Ominously, even more such acts were promised.
Prior to the global financial crisis of 2008, a popular term described the supposed benefits created by the Fed. The Great Moderation referred to the reduced volatility of the business cycle. For example, I have written beforeabout economist Marvin Goodfriend, who asserted that the Fed does better than the gold standard.
(Credit: Greg Ziegerson and Keith Weiner)
An Orwellian Mandate for the Provision of Miracles
This belief is inherent in the Fed’s very mandate from Congress. The Fed states its three statutory objectives as, “maximum employment, stable prices, and moderate long-term interest rates.” These terms are Orwellian.
Maximum employment means five percent of able-bodied adults can’t find work. Stable prices are actually rising relentlessly, at two percent per year. The meaning of moderate long-term interest rates must be changing, because rates have been falling for a third of a century.
That aside, the basic idea is that the Fed has both the power and the knowledge to somehow deliver an economic miracle. However, we know that central planning never works, even for simple things such as wheat production. Communist states have invariably failed to produce the food to keep their people alive. Stalin, Mao, and other communist dictators have deliberately starved off segments of their populations that they couldn’t feed.
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